Updated with correction
PBGC Director Joshua Gotbaum's quest to cut the premiums paid by financially healthy plan sponsors and raise those paid by companies at risk of insolvency is under attack by business groups and others worried that it could further discourage defined benefit plans.
Business groups also are against President Barack Obama's proposal to give the Pension Benefit Guaranty Corp. the authority to set its own premiums.
“Our first concern is turning over authority to them, when it should stay with Congress,” said Aliya Wong, executive director of retirement policy for the U.S. Chamber of Commerce in Washington. “Our second concern is tying the premiums to risk.”
But the risk-based premium is attracting the most criticism.
Basing a company's premiums on its financial condition “is a terrible idea,” said Mark Ugoretz, president and chief executive of the ERISA Industry Committee, a Washington watchdog group representing major employers. “The PBGC is losing its customer base already. This is just going to chase away customers who have to compete with the guy down the street who doesn't have a defined benefit plan.”
Pension expert Douglas Elliott, a fellow at The Brookings Institution in Washington, thinks the alarmist view “is absolutely a red herring.”
“There are many, many reasons defined benefit plans have been in decline. The premiums have almost nothing to do with it.”
Mr. Gotbaum believes his risk-based approach could give defined benefit plans a boost.
“We're trying to give an incentive for people to stay in defined benefit plans,” he said in an interview. “It's very true that the government makes it harder for people to offer them. This is a step to say, "We know that you're financially sound and we want to encourage you to stay here.'”
Plus, he argues, it's better than raising everyone's rates. “Three-fourths (of plan sponsors)will never need us, but those three-fourths are paying for the others.”